Explain as you go, because otherwise
kids might think some purchases are free

Technology has probably changed how you make purchases. According
to a 2013
study by the Federal Reserve Bank of Boston, only about 26
percent of transactions take place in cash. Without speaking a word or reaching
for your wallet, you can order pizza, buy concert tickets, or pay your bills. One
aunt observed her nine-year-old niece:

“The way my niece watched movies, her father pointed the
remote at the television screen, and pretty soon a movie would start. She
didn’t know her dad was buying the movie for $1.99 or $4.99 every time, so she
didn’t realize there was a difference between regular shows on television and
premium movies.”

By sharing what is happening behind the scenes as you click
“purchase” on the screen, you can help your children see the mystery behind
these transactions. Continue to share with your child when you check your
statements online or on a mobile app—you could even show your child when the
charge for an on-demand movie appears on your account.

What if the adult had said something like: “When I click the button to buy the movie, the
cable company lets us watch the movie right away, and then they add $1.99 to our
bill. I’ll show you the bill next time so you can see.”

Explain
as you go, because
spending takes more effort than it seems

For important spending decisions, you probably start by
comparing your choices. Before you buy something major, like new furniture, you
might sit in front of a computer, looking over prices and features. You might
buy it only when you’ve got a coupon or when it’s on sale. But your child might
see only the result: the new furniture magically arrives in your home. Here’s
what happened to one mother who needed a new car:

“My son watched me research cars and car insurance online
for weeks before I settled on the car I wanted. Then I went to the dealer, and I
came home with a new car – but it wasn’t the sports car my son thought I was
getting. In hindsight, I wish I had taken him with me to the dealership so he
could have seen how I used my tablet to get quotes from other dealers, how I
said no to add-ons that would have driven the cost up, and how I chose a
shorter term loan so I could pay it off quicker and pay less interest. We
talked through this after the fact, but I don’t think that was as effective as
the actual experience would have been.”

The parent did not necessarily have to change her mind about
the car, or discuss her choices in the moment with her teenager. Just seeing
and hearing the process could help the child better understand how complicated financial
decisions can be.

What if the parent had said something like: “When I’m shopping for a new car, I have to
think about a lot of things—not just the car itself. Getting a loan to pay for a car can be complicated.
There is a lot more to choosing a car loan than just the monthly payment. Then there
are the costs of driving the car over time, like gas and insurance. It takes
time to research and compare all the choices.”

Next time you’re buying something online, or with a swipe, consider
talking with your child about what’s
happening. Or next time you make a major purchase, share your thoughts at
different stages in the process. When you put your actions into your own words
– at a level your child understands – you’ll help your child grasp the money
world around them.

Explain
as you go, and share your stories

We’re starting a conversation on
Twitter and Facebook at #MoneyThoughtsWithKids.
Join us and share your stories about money with kids!